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Banking Crises and Central Bank Digital Currency in a Monetary Economy

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  • Tarishi Matsuoka
  • Makoto Watanabe

Abstract

This paper examines the role of Central Bank Digital Currency (CBDC) in a monetary model in which fundamental-based bank runs arise endogenously. We demonstrate that introducing a CBDC designed to replicate the properties of cash displaces physical cash and, when offered at a sufficiently attractive rate, can increase the likelihood of a bank run. In contrast, when the CBDC is designed to resemble bank deposits, cash, CBDC, and deposits can coexist as media of exchange, and a high CBDC rate can eliminate the risk of runs. We further characterize the optimal CBDC policy within this framework.

Suggested Citation

  • Tarishi Matsuoka & Makoto Watanabe, 2025. "Banking Crises and Central Bank Digital Currency in a Monetary Economy," CESifo Working Paper Series 11922, CESifo.
    • Handle: RePEc:ces:ceswps:_11922
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    References listed on IDEAS

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    1. Janet Hua Jiang, 2008. "Banking crises in monetary economies," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(1), pages 80-104, February.
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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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